The 34th Islamic Banking Conference began in Tehran this week. This event, held annually, marks the day Iran adopted laws prohibiting interest (usury) in its banking system. This conference has grown into a platform where experts from both Iran and abroad come together to share ideas and knowledge about Islamic banking. It has become one of the largest events focused on Islamic finance, where new research and global trends in finance are discussed.
Islamic banking in Iran emerged after the 1979 Islamic Revolution, as the country sought to create a financial system free from interest. The goal was to build an economy based on fairness and justice. In 1983, Iran officially passed a law prohibiting interest-based banking. In this system, instead of paying interest on savings/loans, Islamic banks operate differently. Money deposited in a bank is considered a loan to the bank, which then uses it for approved investments, such as businesses that do not involve activities harmful to society, like alcohol, tobacco, or gambling. The bank shares any profit it earns with the depositors, rather than paying fixed interest.
When it comes to loans, Islamic banks do not charge interest. Instead, if a bank lends money to a business, the business shares its profits with the bank. If the business doesn’t make a profit, the bank doesn’t benefit either. This approach encourages more ethical investments and discourages risky financial behavior that can lead to economic bubbles.
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